Fiscal Cliff Deal Necessary, but Rushing Makes Bad Policy

The U.S. tax code is about 73,000 pages. Congress and the White House seem to want to rewrite it in little over a week. Good luck with that.

Rushing makes bad policy. Even if a deal is reached by the end of next week, it’s a sure bet that a future Congress will have to deal with the unintended consequences of an overhaul done too quickly.

Instead of putting every budget item on the table, Washington leaders should focus on avoiding the immediate fiscal cliff. Next year is soon enough to fix the nation’s convoluted tax code and unsustainable spending promises.

The latest twist in the fiscal-cliff soap opera, as reported in Wednesday’s Wall Street Journal, is that corporate taxes are on the table. The White House suggested changes to business taxes; the Republicans viewed the offer as a ruse, and little progress was made on the matter at hand.

Popular wisdom is that a deal will have to be made by late December 21 to allow for a vote before the usual Congressional holiday recess. (As economists at J.P. Morgan point out December 21 is also the date of the Mayan apocalypse.) That means political leaders have about nine days to reach an agreement that for now is focused on taxes rather than spending. (You can’t even read the entire tax code in that short a time–unless you can speed-read about 5 pages a minute with no breaks.)

The uncertainty of 2013 fiscal policy remains a major challenge for a recovery that is weak by historical standards. Hiring is barely strong enough to bring down the unemployment rate. Retail sales look lackluster in early December. Businesses are holding back on capital spending projects.

The fiddling over the fiscal cliff mutes Federal Reserve action. Government fiscal and monetary policies work better when they are complementary, not conflicting.

The sooner Washington leaders reach a deal, the better for the economic outlook.

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